What Is Bitcoin Dominance & How To Read It

Published 12 Aug, 2021 Updated 09 Dec, 2022

Crypto Guides

Cryptocurrencies have been increasing in popularity and are now a trillion-dollar market. It is also volatile which can be corroborated by its historical 30-day gains and losses exceeding 100% on multiple occasions. With an increase in the popularity of cryptocurrencies, crypto trading has grown multi-fold. While veteran traders assess several metrics, one key metric to keep in mind is Bitcoin Dominance. In this article, we will understand what is bitcoin dominance and answer some questions concerning it.

Bitcoin dominance is the measure of the percentage of Bitcoin within the total cryptocurrency market cap. If there is an increase in Bitcoin dominance, alternate cryptocurrencies lose value against BTC and vice versa. Currently, the total crypto market cap is estimated to be $1.94 Trillion. BTC has a market of approximately $875 Billion, therefore BTC dominance is around 45%.

What Is Bitcoin Dominance?

Traders can use Bitcoin dominance to assess the trend of Bitcoin and other alternate cryptocurrencies. Bitcoin dominance is the measure of the percentage of Bitcoin within the total crypto market cap. If there is an increase in Bitcoin dominance, alternate cryptocurrencies lose value against BTC and vice versa.

At the time of writing, there are more than 2000 cryptocurrencies with a total market cap of $1.94 Trillion. Given that Bitcoin has a market cap of $875 Billion, the Bitcoin dominance is more than 45%.

As a trader, you would want to hold Bitcoin when the Bitcoin dominance is bullish. Alternately, if Bitcoin dominance reduces, alternate cryptocurrencies like ETH would be a good option. A steep downtrend in Bitcoin dominance usually results from the bull markets tending to propel alternate coin capitalizations higher than Bitcoin. Conversely, a pullback of this trend is typically a sign of a bear market.

Bitcoin dominance can have varying implications at different time frames and is one of the tools in a trader’s toolkit.

What Does High & Low Bitcoin Dominance Mean?

It is essential to understand how to read Bitcoin dominance as it defines money flow that can help you efficiently manage your positions. It also provides insights that can help predict market moves.

  • If you see an increase in the BTC Dominance, it signifies that money is entering
  • If you see a decrease in BTC Dominance, money is entering the stable coins or
  • An increase in the total market cap is a sign of money entering the crypto market.
  • A decrease in the total market cap is a sign of money exiting the crypto market.

Though Bitcoin dominance is an interesting statistic, it does not reflect its actual value due to pre-mined and forked coins that unnaturally impact the total market cap. Moreover, the market cap does not denote an influx of money. It is merely a measure contingent on the current market price and the circulating supply.

How To Read Bitcoin Dominance?

Let’s understand how to read Bitcoin dominance and execute a trade based on it.

In June 2019, money flowed into BTC. ETH/BTC pair would fall as the price of BTC increases in USD. Thus, BTC/USD increased more than ETH/USD. If you HODL BTC, you will earn more than what you would make by HODLing ETH at the time. Thus, holding ETH while Bitcoin is strong minimizes your USD gain and decreases your BTC value. Thus, it is essential to learn how to read the Bitcoin dominance chart. Platforms like TradingView and CoinMarketCap.com allow you to view it with a single click.

People assume that they are winning in the crypto industry if their crypto goes up against USD; however, they sometimes lose BTC without noticing. So it’s essential to read the dominance chart and set an alert about the Bitcoin dominance trend. If it is going down, start investing in altcoins and if it increases, hold Bitcoin.

Bitcoin dominance is usually impacted by “alt seasons,” where altcoins acquire market share relative to BTC, causing a reduction in Bitcoin’s dominance. However, Bitcoin dominance is not always directly impacted by bear or bull markets as it is a ratio and not an absolute term. Thus, if Bitcoin falls in price but the rest of the cryptocurrency market falls at a similar rate, Bitcoin dominance is likely to remain the same.

How Is Bitcoin Dominance Calculated?

Bitcoin is the largest cryptocurrency coin in the world by market capitalization. It commands a significant portion of the trading volume and attention in the crypto space. To calculate Bitcoin dominance, one must first compute the market capitalization of all the existing cryptocurrencies (including Bitcoin). Bitcoin dominance is the ratio between the market cap of Bitcoin to the entire cryptocurrency market.

In 2009-2010, when Bitcoin was the only cryptocurrency and you could not purchase altcoins, its dominance was closer to 100%. However, Bitcoin dominance reduced significantly with the launch of new cryptocurrencies. The launch of new cryptocurrencies relates to the increase in IEO/ICOs that started after the introduction of Ethereum and the ERC-20 token standard.

Does Bitcoin Dominance Have Any Drawbacks?

Some analysts argue that the Bitcoin dominance metric fails to consider the Bitcoin that has been lost forever due to hacks or people losing access to their private keys. Nonetheless, Bitcoin dominance can help guide you in determining the amount of capital you should allocate to altcoins. However, you should certainly consider other metrics and analyses as well.

Aaron SengAaron Seng

Aaron Seng is the Founder of MoreCrypto.com. His journey in the world of cryptocurrency began in 2016 where he was an early investor in Bitcoin and Ethereum. His initial interests revolved around blockchain technologies and their application in a variety of industries and markets. Over the years, he has watched the slow and steady progression and growth of digital currencies around the world.

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